110 F.

3d 663
1997 A.M.C. 1617, 97 Cal. Daily Op. Serv. 2266,
97 Daily Journal D.A.R. 4141

AQUA-MARINE CONSTRUCTORS, INC., an Oregon

corporation,
Plaintiff-Appellee,
v.
Mike BANKS, individually and d/b/a Mike Banks Company,
Defendant;
Polaris Insurance Company, Ltd., a foreign corporation,
Defendant-Appellant.
POLARIS INSURANCE COMPANY, LTD., a foreign
corporation,
Counter-Claimant-Cross-Claimant-Third-Party Plaintiff,
v.
AQUA-MARINE CONSTRUCTORS, INC., an Oregon
corporation,
Counter-Defendant,
and
Mike Banks, individually and d/b/a Mike Banks Company,
Cross-Defendants,
and
Latham Smith, individually and d/b/a Smith Maritime; The
Tugboat Elizabeth II; Pearcy Marine, Inc., a Colorado
corporation; Jim Pearcy, an individual; The Tugboat Garnet
Banks; The Tugboat John Banks; and Barge 242, Third-Party
Cross-Defendants.
No. 95-36021.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Jan. 6, 1997.
Decided March 28, 1997.

Mary Ellen Page Farr, Kell, Alterman and Runstein, Portland, OR, for
defendant-appellant Polaris Insurance Company, Ltd.
Joseph L. Gimbrone, Gilson & Heaton, San Diego, CA, for defendantappellant Polaris Insurance Company, Ltd.
Karen O'Kasey, C. Kent Roberts, Schwabe, Williamson & Wyatt,
Portland, OR, for plaintiff-appellee Aqua-Marine Constructors, Inc.
Appeal from the United States District Court for the District of Oregon,
Helen J. Frye, District Judge, Presiding. D.C. No. CV-92-1161-HJF.
Before PREGERSON and THOMAS, Circuit Judges, and REED, Jr., *
District Judge.
EDWARD C. REED, Jr., District Judge:
Introduction
Polaris Insurance Company appeals the order of the district court granting
summary judgment in favor of Aqua-Marine Constructors, in AquaMarine's action against Polaris on a surety bond executed by Michael
Banks and Polaris in favor of Aqua-Marine.
I. Facts
Aqua-Marine Constructors, an Oregon corporation, owns an oceangoing
barge, the "Aqua 242." In May 1992 Aqua-Marine entered into a bareboat
charter agreement with Michael Banks, a resident of California. Under the
terms of the charter party, Banks was to take possession of the barge at
Everett, Washington, make monthly charter hire payments in the amount
of $24,000.00, and redeliver the barge to Aqua-Marine at Everett. The
charter party obligated Banks to at least three months' hire, and further
required him to obtain a bond securing the payment of the charter hire and
the proper redelivery of the barge at the termination of the charter period.1
Banks did obtain a performance bond which he and Polaris Insurance
Company executed on May 15, 1992, in favor of Aqua-Marine.2 Polaris is
an insurance carrier incorporated under the laws of the Republic of Costa
Rica.
By the beginning of August 1992, Banks was in default of his obligation
to make charter hire payments. At some point the barge apparently came
into the possession of "Latham Smith," a towage operator, without Aqua-

Marine's approval.3 Smith recorded a lien against the barge, presumably

for nonpayment of services rendered the Aqua 242, and caused the vessel
to be arrested by federal marshals in Charleston, South Carolina, on
August 17, 1992.
The shipowner, Aqua-Marine, demanded that Banks' surety, Polaris
Insurance, rescue the barge, make redelivery of the barge to Aqua-Marine,
and pay Banks' charter hire arrears. Polaris refused, on the grounds (1)
that its obligations under the performance bond had been suspended, and
coverage canceled, in July 1992, after Michael Banks failed to tender his
premium payments and (2) that Banks had never tendered the collateral
required by the terms of the performance bond, thereby reducing Banks'
coverage to zero.
II. Proceedings Below
In September 1992 Aqua-Marine sued both Banks and Polaris in an
Oregon federal court, alleging diversity jurisdiction. On August 5, 1993
Polaris filed an answer and cross-complaint, alleging admiralty
jurisdiction.
An Oregon insurance statute requires an insurance carrier not certified to
do business in Oregon to deposit funds into court to abide a future
judgment before filing any defensive pleadings in a civil action against it.
On December 9, 1993, the district court, relying on this statute, struck
Polaris' answer and cross-complaint, and ordered Polaris to deposit
$150,000.00 in court. Polaris appealed the district court's ruling; that
appeal was dismissed by this court for want of jurisdiction. Polaris refused
to make the deposit, and on August 1, 1994 was cited for contempt. On
September 7, 1995 the district court granted Aqua-Marine's motion for
summary judgment, and entered judgment in favor of Aqua-Marine, and
against Polaris and Banks. On October 3, 1995 Polaris instituted this
appeal from the judgment of the district court.
III. Discussion
Polaris assigns as error the district court's choice of law and its
construction of several Oregon insurance statutes. These assignments of
error involve purely legal questions; our review of the district court's
rulings is therefore de novo. Brannan v. United Student Aid Funds, Inc.,
94 F.3d 1260, 1262 (9th Cir.1996) (district court's statutory construction
reviewed de novo ); Jenkins v. Whittaker Corp., 785 F.2d 720, 724 (9th
Cir.) (district court's choice of law reviewed de novo ), cert. denied, 479
U.S. 918, 107 S.Ct. 324, 93 L.Ed.2d 296 (1986).

A. Preemption
Polaris argues that the performance bond is a maritime contract, and that
therefore any dispute arising out of the contract must be resolved purely
by reference to federal maritime law; Polaris maintains, essentially, that to
the extent Oregon's insurance statutes purport to apply to maritime
insurance contracts, they are preempted by federal maritime law. AquaMarine, for its part, contends that the performance bond is not a maritime
contract at all, or if it is, that the Oregon insurance statute nevertheless
governs its action against Polaris.
The question whether the performance bond is a maritime contract is
irrelevant for the purpose of determining whether Oregon's bond
requirement statute is preempted by federal maritime law: Under Wilburn
Boat Co. v. Fireman's Fund Insurance Co., 348 U.S. 310, 75 S.Ct. 368, 99
L.Ed. 337 (1955), disputes over maritime insurance contracts may be
governed by state law, in the same manner as non-maritime insurance
contracts, as long as the state law does not clearly conflict with federal
maritime law. See Askew v. American Waterways Operators, Inc., 411
U.S. 325, 341, 93 S.Ct. 1590, 1600, 36 L.Ed.2d 280 (1973). Polaris has
not asserted, and we fail to discern, any direct conflict between the Oregon
statute applied by the district court and federal maritime law, either statute
or decisional.
Federal maritime jurisdiction is not, and has never been, entirely
exclusive. American Dredging Co. v. Miller, 510 U.S. 443, 446, 114 S.Ct.
981, 984-85, 127 L.Ed.2d 285 (1994) (citing the "saving to suitors" clause
of the federal Judiciary Act of 1789, 9, 1 Stat. 76-77, current version at
28 U.S.C. 1333(1)). State and federal authorities jointly wield control
over maritime matters. Romero v. International Terminal Operating Co.,
358 U.S. 354, 374, 79 S.Ct. 468, 481, 3 L.Ed.2d 368 (1959). It is, for
example, beyond question that state courts may not offer a litigant a
remedy in rem for any cause of action cognizable in admiralty. Red Cross
Line v. Atlantic Fruit Co., 264 U.S. 109, 124, 44 S.Ct. 274, 277, 68 L.Ed.
582 (1924); The Moses Taylor, 71 U.S. (4 Wall.) 411, 431, 18 L.Ed. 397
(1866). Nor may state workers compensation statutes be applied to
personal injury actions over which the federal courts exercise admiralty
jurisdiction. Southern Pacific Co. v. Jensen, 244 U.S. 205, 37 S.Ct. 524,
61 L.Ed. 1086 (1917). But a state court may, in exercising jurisdiction in
personam over a maritime claim, " 'adopt such remedies, and ... attach to
them such incidents, as it sees fit so long as it does not attempt to make
changes in the substantive maritime law.' " American Dredging, 510 U.S.
at 447, 114 S.Ct. at 985 (quoting Madruga v. Superior Court, 346 U.S.

556, 561, 74 S.Ct. 298, 301, 98 L.Ed. 290 (1954)) (further internal
quotation marks omitted). State-created maritime remedies offend federal
admiralty prerogatives only where the state remedy "works material
prejudice to the characteristic features of the general maritime law, or
interferes with the proper harmony and uniformity of that law in its
international and interstate relations." Jensen, 244 U.S. at 216, 37 S.Ct. at
529. The issue, then, is whether Oregon's requirement that an
unauthorized insurer post bond before filing any pleading in an action
against it does violence to any "characteristic feature" of admiralty or
otherwise sounds a note so discordant as to destroy the proper harmony of
federal maritime law. American Dredging, 510 U.S. at 447, 114 S.Ct. at
985.
Oregon's statute imposes a significant burden on a defendant unauthorized
insurer. This burden is not uniform: some states may require such insurers
to post security before appearing as a defendant in a civil action, and some
states may not. But lack of uniformity may not by itself mandate federal
preemption. The Supreme Court has noted that "it would be difficult, if
not impossible, to define with exactness just how far the general maritime
law may be changed, modified, or affected by state legislation. That this
may be done to some extent cannot be denied." Jensen, 244 U.S. at 216,
37 S.Ct. at 529 (quoted in American Dredging, 510 U.S. at 451, 114 S.Ct.
at 987).
The Court in American Dredging reversed the judgment of the lower court
that Louisiana's forum non conveniens rule made such inroads into the
proper uniformity of federal maritime law as to be preempted. The Court
was in large part persuaded that the Louisiana rule was "procedural" rather
than "substantive," i.e. application of the state rule did not "bear upon the
substantive right to recover, and [was] not a rule upon which maritime
actors rely in making decisions about primary conduct--how to manage
their business and what precautions to take." 510 U.S. at 454, 114 S.Ct. at
988-89. At least in Justice Souter's mind,
[t]he characterization of a state rule as substantive or procedural will be a
sound surrogate for the conclusion that would follow from a more
discursive preemption analysis. The distinction between substance and
procedure will, however, sometimes be obscure. As to those close cases,
how a given rule is characterized for purposes of determining whether
federal maritime law preempts state law will turn on whether the state rule
unduly interferes with the federal interest in maintaining the free flow of
maritime commerce.

Id. at 457-58, 114 S.Ct. at 990 (Souter, J., concurring).

The instant appeal is one of those close cases. The state rule prohibits a
defendant unauthorized insurer from filing any pleading in an action against it
before first depositing with the court funds sufficient to satisfy any judgment
which might be entered. This rule is one upon which a maritime actor might
rely in making decisions about primary conduct: It seems entirely possible that
maritime insurers might seek to avoid like the plague those jurisdictions
affording plaintiffs such a provisional remedy. Maritime insurers might refuse
to execute insurance contracts in such states, or refuse to cover risks in those
states. It seems even more likely that maritime insurers, having insured an
Oregon resident, or having underwritten an Oregon risk, will order at least their
secondary conduct with the Oregon provisional remedy in mind. That is, the
knowledge that Oregon will require the deposit by a defendant unauthorized
insurer of enough money to cover the plaintiff's claims may well figure in
litigants' decisions as to where to bring suit, or where to subject themselves to
suit. See id. at 455, 114 S.Ct. at 989. Because the subject state rule could
conceivably influence both primary and secondary conduct, the dialectic of
substance and procedure yields no ready answer to the question posed by the
instant appeal. It remains, then, to be determined whether Oregon's rule
"unduly interferes" with the federal interest in untrammeled maritime
commercial activity. See Wilburn Boat, 348 U.S. at 321, 75 S.Ct. at 374-75
(requiring federal admiralty courts to apply state insurance law where
applicable to marine underwriters so long as such laws do not intrude upon
federal admiralty principles); Youell v. Exxon Corp., 48 F.3d 105, 110 (2d
Cir.), cert. granted and judgment vacated on other grounds, 516 U.S. 801, 116
S.Ct. 43, 133 L.Ed.2d 9 (1995).

One panel of this court has addressed the very question presented by this
appeal. In Bank of San Pedro v. Forbes Westar, Inc., 53 F.3d 273 (9th
Cir.1995), a shipowner sued its hull insurance carrier, seeking recovery under
the policy for the loss of the vessel. In the district court, the shipowner had
moved to strike the carrier's answer for non-compliance with a California
statute requiring unauthorized foreign insurers to post security sufficient to
satisfy the judgment prior to filing any pleading in a civil action against it.
Citing Wilburn and American Dredging, the appellate court ruled that because
the statutory requirement was part of the state's regulation of insurance, and
was "the kind of local policy that federal courts are to apply when sitting in
admiralty," it was bound to apply the California bond requirement statute to the
admiralty case at bar. Bank of San Pedro, 53 F.3d at 275; see Cal. Ins.Code
1616.

The Bank of San Pedro panel did not find the California bond requirement to be
procedural rather than substantive, nor did it find explicitly that the statute did
not conflict with federal maritime law or policy. Instead, the Bank of San Pedro
court reasoned that "[t]o disregard [the statute] would be to damage the
mechanism by which California regulates insurance." 53 F.3d at 275. This
recognition, while correct, does not supplant the preemption analysis required
by American Dredging.

Other federal courts have grappled with the same question. In Amoco Overseas
Oil Co. v. Compagnie Nationale Algerienne de Navigation, 605 F.2d 648 (2d
Cir.1979), the Second Circuit ruled that prejudgment remedies are not only
procedural in nature, but also entirely consistent with traditional admiralty
practice. See Signal Capital Corp. v. Eastern Marine Management, Inc., 899
F.Supp. 1167, 1169 (S.D.N.Y.1995) (approving imposition of New York bond
requirement upon defendant foreign insurer, and citing Compagnie Nationale
Algerienne as support for proposition that such prejudgment remedy is (a)
procedural and (b) not in conflict with federal maritime law). In Toomer v.
Southwest Casualty Insurance Co., 231 F.Supp. 542 (S.D.Tex.1964), which
dealt with a Texas bond requirement statute more or less identical to the Oregon
statute at issue in the present matter, the court ruled that the Texas statute
neither contravened any Act of Congress, nor prejudiced any characteristic
feature of, or interfered with the uniform application of, federal maritime law,
and therefore could lawfully be applied in admiralty. Toomer, 231 F.Supp. at
543.4

What is more, the federal Supplemental Rules for Certain Admiralty and
Maritime Claims explicitly incorporate by reference state provisional remedies:
In admiralty actions in personam "the plaintiff may ... invoke the remedies
provided by state law for attachment and garnishment or similar seizure of the
defendant's property." Fed.R.Civ.P. Supp. R. B(1); see Result Shipping Co.,
Ltd. v. Ferruzzi Trading USA Inc., 56 F.3d 394, 401-02 n. 4 (2d Cir.1995). To
the extent the Oregon bond requirement statute works a prejudgment "seizure"
of the property of an unauthorized foreign insurer, then, the statute not only
does not conflict with federal maritime rules, it is actually incorporated by
reference in the federal rules of procedure for maritime claims.
B. Choice of Law

The Oregon bond requirement statute is therefore not preempted by federal

maritime law, but may lawfully be applied to an action before a federal court
sitting in admiralty. The question remains, however, whether Oregon law
should apply to this action at all. Defendant-Appellant Polaris argues that it

should not. Polaris argues, first, that the clause in the charter party selecting
Washington as the State whose law should apply to disputes over the charter
party should apply with equal force to the instant dispute over the performance
bond. Polaris argues alternatively that because neither the execution of the
bond, nor the voyage contemplated by the charter party, took place in Oregon,
that Oregon law should not apply to any action on the bond.
7

In order to settle any choice of law issue, we must first determine whether this
court's jurisdiction over the subject matter of this action, and that of the district
court, derives from the diversity of citizenship of the parties, or from the
maritime nature of the contract sued on. This is so because a federal court
sitting in diversity applies the choice-of-law rules of the forum state, Klaxon
Co. v. Stentor Elec. Mfg. Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22,
85 L.Ed. 1477 (1941), whereas a federal court sitting in admiralty must apply
federal maritime choice-of-law rules. Sundance Cruises Corp. v. American
Bureau of Shipping, 7 F.3d 1077, 1080 (2d Cir.1993) (citing Kossick v. United
Fruit Co., 365 U.S. 731, 735, 81 S.Ct. 886, 889-90, 6 L.Ed.2d 56 (1961)), cert.
denied, 511 U.S. 1018, 114 S.Ct. 1399, 128 L.Ed.2d 72 (1994); Mentor Ins. Co.
(U.K.) Ltd. v. Brannkasse, 996 F.2d 506, 513 (2d Cir.1993) (citing rule of Pope
& Talbot, Inc. v. Hawn, 346 U.S. 406, 409-11, 74 S.Ct. 202, 204-06, 98 L.Ed.
143 (1953), that federal admiralty court must apply existing federal maritime
law); Albany Ins. Co. v. Anh Thi Kieu, 927 F.2d 882, 890 (5th Cir.), cert.
denied, 502 U.S. 901, 112 S.Ct. 279, 116 L.Ed.2d 230 (1991); State Trading
Corp. of India, Ltd. v. Assuranceforeningen Skuld, 921 F.2d 409, 414 (2d
Cir.1990); Gonzalez v. Naviera Neptuno A.A., 832 F.2d 876, 880 n. 3 (5th
Cir.1987); Illinois Constructors Corp. v. Morency & Assocs., Inc., 802 F.Supp.
185, 187-88 (N.D.Ill.1992).

The admiralty jurisdiction of the federal courts extends to all maritime causes
of action. 28 U.S.C. 1333(1). But is Aqua-Marine's cause of action on the
performance bond a maritime claim?

As a general rule, admiralty law applies to all maritime contracts. Insurance Co.
v. Dunham, 78 U.S. (11 Wall.) 1, 29, 20 L.Ed. 90 (1870). Justice Story long
ago announced the rule that a contract relating to the navigation, business or
commerce of the sea is a maritime contract, an action on which may be brought
in admiralty. De Lovio v. Boit, 7 F. Cas. 418, 444 (C.C.Mass.1815) (No.
3,776). More recently, it has been held that a contract is maritime if it relates to
a ship in its use as such, or to commerce or to navigation on navigable waters,
or to transportation by sea, or to maritime employment. J.A.R., Inc. v. M/V
Lady Lucille, 963 F.2d 96, 98 (5th Cir.1992). It is, therefore, the subject matter
(rather than the place of execution or place of performance) of a contract which

determines the existence of federal maritime jurisdiction over a contractual

claim. North Pac. S.S. Co. v. Hall Bros. Marine Ry. & Shipbuilding Co., 249
U.S. 119, 39 S.Ct. 221, 63 L.Ed. 510 (1919); Rea v. The Eclipse, 135 U.S. 599,
608, 10 S.Ct. 873, 875-76, 34 L.Ed. 269 (1890); The Steamboat Orleans v.
Phoebus, 36 U.S. (11 Pet.) 175, 183, 9 L.Ed. 677 (1837); Genetics Int'l v.
Cormorant Bulk Carriers, Inc., 877 F.2d 806, 808 (9th Cir.1989). It is the
character of the work to be performed under a contract which determines
whether the contract is maritime. Hinkins S.S. Agency, Inc. v. Freighters, Inc.,
498 F.2d 411, 412 (9th Cir.1974) (citing Hall Bros., 249 U.S. at 125, 39 S.Ct.
at 222-23). If the subject of the contract relates to the ship and its uses as such,
or to commerce or navigation on navigable waters, or to transportation by sea,
the contract is maritime. Ingersoll Milling Mach. Co. v. M/V Bodena, 829 F.2d
293, 302 (2d Cir.1987), cert. denied, 484 U.S. 1042, 108 S.Ct. 774, 98 L.Ed.2d
860 (1988). If the obligation sued on is "directly and in essence" a maritime
obligation, for the performance of maritime service or transactions, a suit on the
obligation is cognizable in admiralty. Weinstein v. Eastern Airlines, Inc., 316
F.2d 758, 766 (3d Cir.) (quoting Pacific Sur. Co. v. Leatham & Smith Towing
& Wrecking Co., 151 F. 440, 443-44 (7th Cir.1907)), cert. denied, 375 U.S.
940, 84 S.Ct. 343, 11 L.Ed.2d 271 (1963).
10

The bareboat charter executed by Plaintiff-Appellee Aqua-Marine, the owner of

the boat, and Michael Banks, the charterer, required Banks to obtain a bond
securing payment of the charter hire and redelivery of the boat at the
termination of the charter. Defendant-Appellant Polaris was not a party to the
bareboat charter, and the charter party itself is not the subject of this appeal.
Aqua-Marine sued Polaris for breach of the latter's obligations under the
performance bond. Aqua-Marine has argued that the performance bond is
simply not a maritime contract, but a garden-variety insurance policy, subject to
state regulation in the same manner as any other contract of insurance.

11

Normally, a performance bond which compensates an obligee for loss in the

event of nonperformance by the principal obligor is not a maritime contract.
Leatham & Smith, id.; see also Buttner v. Adams, 236 F. 105, 107 (9th
Cir.1916). But the performance bond at issue in the present appeal obligated
Polaris to perform Banks' obligations under the charter in the event of Banks'
default. In particular, the performance bond required Polaris to assume Banks'
obligation, under the charter party, to redeliver the barge to Aqua-Marine at the
end of the charter period. Such a contract is quintessentially maritime, for it
requires the obligor to perform a duty uniquely maritime in character. The
leading admiralty treatise has declared that

a bond securing the performance of a charter party is not a maritime contract for the
12

purposes of admiralty jurisdiction, although the charter party itself is a maritime

contract; the surety on the bond neither promises performance of the charter party
nor is [s]he authorized to do so; h[er] obligation is merely to pay damages in the
event of non-performance. Where, however, there is a promise to perform a charter
in the default of another, there is a maritime contract.
13

1 Steven F. Friedell, Benedict on Admiralty 183, at 12-10 (1996) (footnote

omitted). Aqua-Marine's claim against Polaris arises out of Polaris' promise, in
the event of a default by the charterer, to return the ship to its home port.

14

A charter party is clearly a maritime contract. In the event of a default by

Banks, Polaris was to step into his shoes and perform Banks' duties under the
charter party. The bond therefore contemplated Polaris' assumption of Banks'
duties under a maritime contract. The bond was not, for example, a contract of
insurance whereby Polaris promised to pay money in the event of a loss. In the
event of a default, Polaris had undertaken "to assume the performance of the
bond, to become the principal obligor, to do the very act promised by [the
charterer], to substitute the promisor's performance for the promisee's."
Compagnie Francaise De Navigation a Vapeur v. Bonnasse, 19 F.2d 777, 779
(2d Cir.) (emphasis supplied), cert. denied, 275 U.S. 551, 48 S.Ct. 114, 72
L.Ed. 421 (1927); see also The Fort Armstrong, 51 F.2d 1063, 1065
(S.D.Ga.1931) (recognizing that while "the ultimate liability of the surety
would be measured by money, it was in terms bound by all the obligations of
its principal, and the obligation of the principal was to properly perform
maritime duties in accordance with his profession"). Accord Japan Line, Ltd. v.
Willco Oil Ltd., 424 F.Supp. 1092, 1093 (D.Conn.1976) (ruling that guarantee
of performance of maritime contract was enforceable in admiralty); Haller v.
Fox, 51 F. 298 (D.Wash.1892) (exercising admiralty jurisdiction over action by
shipowner against charterer's surety for unpaid charter hire and for unpaid
services and supplies furnished to vessel).5 Cf. Leatham & Smith, 151 F. at 443;
cf. also Interocean Shipping Co. v. National Shipping & Trad. Corp., 462 F.2d
673, 678 (2d Cir.1972) (declaring that agreement to act as surety on a charter
party is not a maritime contract).

15

Polaris' obligation to perform the charterer's redelivery obligation was therefore

truly and completely maritime in character. South Carolina State Ports Auth. v.
Silver Anchor, S.A., 23 F.3d 842, 846 n. 3 (noting that guarantor of principal's
maritime obligation may be sued in admiralty) (4th Cir.1994); Rex Oil, Ltd. v.
M/V Jacinth, 873 F.2d 82, 86 (5th Cir.1989) (concluding that settlement
agreement provision requiring return of vessel to commerce imposed a
maritime obligation), cert. denied, 493 U.S. 1043, 110 S.Ct. 836, 107 L.Ed.2d
832 (1990); Davis v. Dittmar, 6 F.2d 141, 142 (2d Cir.1925) (upholding right of

holder of third-party's guarantee of another's maritime obligation to sue

guarantor in admiralty); Japan Line, 424 F.Supp. at 1093-94 (stating rule that
guarantee of performance of another's maritime obligation is itself a maritime
contract); Northern Star S.S. Co. of Canada v. Kansas Milling Co., 75 F.Supp.
534, 536 (S.D.N.Y.1947) (ruling guarantee of performance of marine charter a
maritime contract). Cf. Eadie v. North Pac. S.S. Co., 217 F. 662
(N.D.Cal.1914) (declining to exercise federal maritime jurisdiction over action
on bond requiring charterer's surety to pay only damages in the event of default,
rather than guaranteeing performance of any maritime obligation contained in
the charter party). Aqua-Marine's action against Polaris is therefore cognizable
in admiralty.
16

In sum, actions against sureties on bonds securing performance are cognizable

in admiralty if the surety's obligation under the bond is the same as that of the
original promisor, but not if the surety is obligated only to pay a sum of money
and the duties of the original promisor were otherwise. 7A James W. Moore,
Moore's Federal Practice p 260.2, at 3060 (2d ed.1995). Polaris did undertake to
assume Banks' obligations under the charter party in the event of a default by
Banks. The performance bond is therefore a maritime contract.6 As the court's
admiralty jurisdiction has been affirmatively and properly invoked by Polaris,
see Bodden v. Osgood, 879 F.2d 184, 186 (5th Cir.1989), the choice of law to
be applied is governed by federal maritime choice of law rules.

17

It is clear that federal maritime law will not preempt state insurance statutes
requiring a defendant insurer to post bond before filing any pleadings in the
action against it. Oregon has enacted such a statute; Washington has not. Polaris
demands that the court apply Washington law.

18

This Circuit has never formally set out the choice of law rules to be applied
where the law of more than one State vies for application in an action on a
maritime contract. But the U.S. Court of Appeals for the Fifth Circuit, the
federal courts' cutwater in matters maritime, recently confronted the problem. In
Albany Insurance Co. v. Anh Thi Kieu, 927 F.2d 882 (5th Cir.), cert. denied,
502 U.S. 901, 112 S.Ct. 279, 116 L.Ed.2d 230 (1991), the Fifth Circuit, after
first determining that federal maritime law would not preempt state insurance
statutes, was forced to choose between the law of Texas and Louisiana in an
action on a policy of marine insurance.

19

The Fifth Circuit began its interstate choice of law analysis by reciting the three
commonly stated choice of law principles applicable to marine insurance
contracts: First, there is the rule requiring a federal admiralty court to apply the
law of the state where the contract was formed. Second, there is the principle

whereby the court applies the law of the state where the contract was issued and
delivered. Third, there is the question of which state possesses the greatest
interest in the resolution of the legal issues presented. Id. at 890 (citing,
respectively, Graham v. Milky Way Barge, Inc., 811 F.2d 881, 885 (5th
Cir.1987); Elevating Boats, Inc. v. Gulf Coast Marine, Inc., 766 F.2d 195, 198
(5th Cir.1985); Truehart v. Blandon, 884 F.2d 223, 226 (5th Cir.1989)).
20

As the Albany panel recognized, these separate rules might militate in favor of
different results. The contract at issue in the present appeal was issued by
Polaris in San Jose, Costa Rica, and delivered to Michael Banks in Long Beach,
California. Banks executed the contract in California, and then forwarded it to
Aqua-Marine in Portland, Oregon. The contract was thus "formed" and "issued"
in Costa Rica, and "delivered" in California, for the benefit of an Oregon
resident corporation. And because Aqua-Marine, a third-party beneficiary of
the contract between Banks and Polaris, is a resident of Oregon, that State
clearly has a significant interest in the resolution of the dispute.

21

The Albany court noted that "modern choice of law analysis, whether maritime
or not, generally requires the application of the law of the state with the 'most
significant relationship' to the substantive issue in question." 927 F.2d at 891
(citing Restatement (Second) of Conflict of Laws 6 cmt. c (1980)). The "most
significant relationship" test requires identification of the place of negotiation
and execution of the contract as a means of determining which states have had
sufficient contacts with the parties and the transaction to justify application of
their law. Id. (citing Restatement (Second) of Conflict of Laws 188 (1971)).
The Fifth Circuit concluded that the choice of law rules regarding the places of
formation, issuance and delivery "identify only the states which have sufficient
contact with the policy and the parties that their laws can be applied." Albany
Ins., 927 F.2d at 891. The "greatest interest" rule will determine, from among
those states, which state's law should be applied. Id. In other words, "[a] federal
court in a marine insurance dispute must apply the first two rules to isolate the
'eligible' states; of these states, the court then must determine which state has
'the greatest interest in the resolution of the issues.' " Id. (quoting Truehart, 884
F.2d at 226).

22

Employing the Albany two-step analysis, the only "eligible states" are
California (where the performance bond was delivered and executed), and
Costa Rica (where the bond was drawn up and issued). Under the first two
rules, Oregon and Washington have had no contacts whatever with the
performance bond: The Fifth Circuit's test eschews any inquiry into the place of
performance or the location of the parties.

23

The Restatement, however, determines applicable law by identifying "the state

which ... has the most significant relationship to the transaction and the
parties...." Restatement (Second) of Conflict of Laws 188(1) (1971). In
making this determination, the Restatement counsels consideration of (a) the
place of contracting, (b) the place of negotiation of the contract, (c) the place of
performance, (d) the location of the subject matter of the contract, and (e) the
domicil, residence, nationality, place of incorporation and place of business of
the parties. Under the Restatement approach, the foregoing contacts are
evaluated according to their relative importance with respect to the issue in
question. Restatement 188(2).7 As between the Fifth Circuit and the
Restatement, we think the Restatement's more comprehensive approach to the
"most significant relationship" test will, in the long run, more appropriately
serve the purposes of the choice of law rules, namely the furtherance of
harmonious relations between states and the facilitation of commercial
intercourse between them. Restatement 6 cmt. d, 188 cmt. b.

24

Using the Restatement approach, California, Oregon, Washington and Costa

Rica all have had significant contacts with the performance bond: Polaris is a
Costa Rica resident, and drew up and issued the bond in San Jose, Costa Rica.
Banks is a California resident, and he executed the bond in California. AquaMarine, for whose benefit the bond was executed, is an Oregon resident.
Polaris was, in case of default, to perform Banks' obligation to redeliver the
vessel in Washington, by sailing the barge to its home port in Everett.

25

Of these three states, Oregon has a considerably greater interest in the

application of its insurance code than do either California or Washington:
Oregon has a strong interest in the protection of its citizens, including AquaMarine, against the insolvency of a foreign insurer. No citizen of Washington
was a party to or beneficiary of the contract at issue. Likewise, California's
interest in enforcing the obligations of Polaris (a Costa Rica corporation) which,
under the terms of its bond, operate in favor of Aqua-Marine does not appear to
be of any substance: California's citizen, Michael Banks, apparently elected not
to defend himself against Aqua-Marine or Polaris, and the district court entered
a default judgment against him on September 7, 1995. If Banks himself was not
moved to assert his rights in this matter, California's interest in the resolution of
the dispute must be correspondingly minimal. Finally, although Costa Rica
might have a substantial interest in applying its own laws, its citizen, Polaris,
has never argued that Costa Rica law should apply.

26

Oregon is, therefore, the state with the greatest interest in the resolution of this
action to enforce a contract. Albany Ins., 927 F.2d at 891; Gulf Tampa Drydock

Co. v. Great Atl. Ins. Co., 757 F.2d 1172, 1174 (11th Cir.1985); Barber v.
Chatham, 939 F.Supp. 782, 786 (D.Haw.1996).
27

The district court's determination that Oregon's insurance statutes applied to

Aqua-Marine's action against Polaris was therefore correct. All that remains is
the question whether the district court interpreted those statutes correctly.
C. The Oregon Insurance Code

28

Oregon's Insurance Code, Or.Rev.Stat. chs. 731-35, 737, 743-44, 746, 748,
850-51, applies to all persons who "transact insurance in this state or relative to
a domestic risk...." Or.Rev.Stat. 731.022. "Insurance" within the meaning of
Oregon's insurance code includes a contract whereby one undertakes to pay
either a specified or ascertainable sum of money to, or to confer a benefit upon,
another, upon a determinable risk or contingency. Or.Rev.Stat. 731.102(1).
The performance bond in the present appeal in effect insured PlaintiffRespondent Aqua-Marine against Michael Banks' failure to make proper
redelivery of the subject oceangoing barge at Everett, Washington. Polaris did
therefore make an insurance contract, thereby "transacting insurance."
Or.Rev.Stat. 731.146(1)(a).

29

The risk covered by the performance bond was the risk that Banks would fail to
redeliver the barge to Aqua-Marine at the termination of the charter period.
Redelivery was to be made at Everett, Washington, the barge's home port. In
default of proper and timely redelivery by Banks, Polaris obligated itself to
make that redelivery. In no sense was the risk a "domestic risk:" An insurer
"transacts insurance relative to a domestic risk" only where the subject of the
insurance resides, is located, or will be performed in Oregon. Or.Rev.Stat.
731.086. Here, the only subject of the performance bond was the redelivery of
the barge at Everett, Washington. The Aqua 242 resides in Washington, and
was at no relevant time located in Oregon. The subject of the insurance does not
reside in Oregon. It was not located in Oregon. It was not to be performed in
Oregon. Unless Polaris "transacted insurance" in Oregon, Oregon's insurance
code does not apply to the performance bond.

30

Polaris undeniably "made" an insurance contract. See Or.Rev.Stat. 731.146(1)

(a). The question remains, however, whether it did so in Oregon; Polaris drew
its policy in Costa Rica, issued it in Costa Rica, and mailed it to Michael Banks
in California, whereupon Banks executed the policy and forwarded it to AquaMarine. Polaris did not take or receive any application for insurance in Oregon,
collect any premium in Oregon, advertise in Oregon, or employ any Oregon

agent. See Or.Rev.Stat. 731.146(1).

31

But the performance bond was executed entirely for the benefit of an Oregon
resident corporation; by its terms Polaris expressly bound itself to AquaMarine. The fact that the subject barge is home-ported in Washington, rather
than in Oregon, is not dispositive, nor is the fact that Polaris did not technically
issue or deliver any policy in Oregon. By underwriting a marine risk in favor of
an Oregon resident, Polaris did in fact transact insurance business "in Oregon."
Any other determination would constitute a wholly unjustified and excessively
formalistic reading of the statute which applies Oregon's insurance code to
persons who "transact insurance in this state or relative to a domestic risk."
Or.Rev.Stat. 731.022.

32

Oregon's insurance code prohibits the transaction of insurance except as

authorized by a certificate of authority issued to the insurer by the state's
Director of Insurance. Or.Rev.Stat. 731.354. Polaris admits it obtained no
such certificate; Polaris was therefore an "unauthorized insurer" under Oregon's
insurance code. Or.Rev.Stat. 731.066(2). In Oregon, before an unauthorized
insurer may file any pleading in an action against it, the defendant insurer must
either (1) procure a certificate of authority or (2) deposit with the clerk of the
court cash, securities, or a bond, sufficient to secure the payment of any
judgment which may be entered against the insurer in the action. Or.Rev.Stat.
746.340(1).

33

This requirement, however, does not apply in an action against an unauthorized

insurer "arising out of any policy of ... wet marine and transportation
insurance." Or.Rev.Stat. 746.360(1). Polaris has argued, both in the lower
court and in the present appeal, that the performance bond was a wet marine
and transportation insurance policy as defined in Oregon's own insurance code.

34

Under Oregon's insurance statutes, "wet marine and transportation insurance" is

a subset of general marine transportation insurance. Or.Rev.Stat. 731.194.
Therefore, it first must be determined whether the surety bond sued on herein
can come within the statutory definition of general marine insurance.

35

Under the Oregon Insurance Code, "marine and transportation insurance"

includes:

36

(1) Insurance against any and all kinds of loss of or damage to:

37

(a) Vessels, craft, aircraft, cars, automobiles and vehicles of every kind, as well

as goods, freights, cargoes, merchandise, effects, disbursements, profits,

moneys, bullion, precious stones, securities, choses in action, evidences of debt,
valuable papers, bottomry and respondentia interests and all other kinds of
property and interests therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or transportation, including
war risks, on or under any seas or other waters, on land or in the air, or while
being assembled, packed, crated, baled, compressed or similarly prepared for
shipment or while awaiting the same or during any delays, storage,
transshipment, or reshipment incident thereto, including marine builders' risks,
and all personal property floater risks including bailees' customers risks;
38

(b) Person or to property in connection with or appertaining to a marine or

inland marine, transit or transportation insurance, including liability for loss of
or damage to either, arising out of or in connection with the construction, repair,
operation, maintenance or use of the subject matter of such insurance (but not
including life insurance or surety bonds nor insurance against loss by reason of
bodily injury to the person arising out of the ownership, maintenance or use of
automobiles);....

39

(2) Marine protection and indemnity insurance meaning insurance against, or

against legal liability of the insured for, loss, damage or expense arising out of,
or incident to, the ownership, operation chartering, maintenance, use, repair or
construction of any vessel, craft or instrumentality in use in ocean or inland
waterways, including liability of the insured for personal injury, illness or death
or for loss of or damage to the property of another person.

40

Or.Rev.Stat. 731.174.

41

Unless the bond constitutes a contract of "marine and transportation insurance"

under Section 174, it cannot be deemed a "wet marine" insurance contract
under Section 194.

42

Subsection 1(a) of the general "marine and transportation insurance" statute

enumerates no fewer than twenty specific categories of things, insurance
against loss of or damage to which is marine insurance. These are, generally,
modes of conveyance (boats, cars, planes), goods and cargo, media of exchange
(cash, bullion), gems, financial documents ("evidences of debt," securities),
choses in action, and maritime hypothecations (respondentia and bottomry
interests). The general term which follows the statutory enumeration of the
foregoing categories of things is "all other kinds of property and interests
therein."To conclude that the bond meets the definitions in Section 174(1)(a)

would violate the principle ejusdem generis. Where general words follow the
enumeration of specific classes of things, the general words must be construed
as restricted to things of the same type as those specifically enumerated. State
v. Brantley, 201 Or. 637, 271 P.2d 668, 672 (1954); Skinner v. Keeley, 47
Or.App. 751, 615 P.2d 382, 385 (1980); 2A Norman J. Singer, Sutherland
Statutory Construction 47.17, at 188-90 (5th rev. ed.1992). The rule derives
from the recognition that "if the legislature had intended the general words to
be used in their unrestricted sense they would have made no mention of the
particular classes." Brantley, id.
43

The principle ejusdem generis requires the phrase "all other kinds of property
and interests therein" to be interpreted to include only objects similar in nature
to those objects enumerated by the preceding specific words. Id.; Sutherland,
id. 47.17. The subject of the surety bond at issue in the present appeal--timely
redelivery of the barge at the conclusion of the charter period--is simply so
unlike any of the things enumerated in subsection 1(a) that it cannot reasonably
be said to be included in the catchall. In addition, surety bonds are explicitly
excluded from the types of contracts defined as maritime insurance in
subsection 1(b).

44

Subsection 2 of the statute includes, in its list of types of contracts declared to

be marine and transportation insurance, "insurance against ... legal liability of
the insured for ... expense arising out of, or incident to ... operation chartering
... of any vessel...." Or.Rev.Stat. 731.174(2). The language of the surety bond
itself precludes a finding that the bond purchased by Mike Banks from Polaris
Insurance insured Banks against his liability for failure to redeliver the barge.
The bond only guarantees performance of Banks' obligations under the charter
party in the event of a default by Banks; it does not, in the event of such a
default, absolve Banks of any liability under the charter party. 8 And the clause
in the charter party requiring Banks to obtain the guarantee bond explicitly
provided that "[t]his bond does not release Charterer from payment schedules as
set forth elsewhere herein."

45

In sum, the surety bond is not "marine and transportation insurance" under any
of the definitional subsections of Or.Rev.Stat. 731.174. "Wet marine and
transportation insurance" is a subset of "marine and transportation insurance."
Or.Rev.Stat. 731.194. Because the bond is not "marine and transportation
insurance" within the meaning of Section 174, it cannot be "wet marine and
transportation insurance" under Section 194. Aqua-Marine's civil action against
Polaris Insurance on the bond is thus not one "arising out of any policy of ...
wet marine and transportation insurance." Or.Rev.Stat. 746.360(1). Polaris
may not invoke Section 360's "wet marine" exemption from the litigation bond

requirement contained in Or.Rev.Stat. 746.340(1).

Conclusion
46

We therefore hold (1) that the section of Oregon's insurance code requiring
foreign insurers to post a litigation bond is not preempted by federal maritime
law; (2) that the performance bond executed by Polaris and Banks in favor of
Aqua-Marine is a maritime contract justifying the exercise of federal admiralty
jurisdiction; (3) that therefore the choice of substantive law to be applied is
governed by federal maritime choice of law rules; (4) that as between the States
of California, Washington and Oregon, and the Republic of Costa Rica, Oregon
is the state with the greatest interest in the outcome of this action, and so its
insurance code applies; and (5) that the surety bond is not a contract of marine
insurance, so that Polaris is obliged under Oregon law to post bond before
appearing in an action against it arising out of an insurance contract relative to
an Oregon risk. The district court properly ordered Polaris to post the litigation
bond required by the state statute. The judgment of the district court is therefore
AFFIRMED.

The Honorable Edward C. Reed, Jr., Senior United States District Judge for the
District of Nevada, sitting by designation

Article 19 of the charter party provided:

CHARTERER shall furnish to OWNER a payment bond in the amount of one
hundred thousand ($100,000.00) dollars. This bond is to provide OWNER with
insurance that all payment and redelivery requirements of this CHARTER are
met. This bond does not release the CHARTERER from payment schedules as
set forth elsewhere herein.

The performance bond provided:

The condition of this performance bond is for the redelivery of the subject
chartered barge Aqua 242 to the Owner, and this bond is to guarantee to the
Owner that such redelivery requirements are met. Failing which, the Surety will
perform on the redelivery, up to the specified amount of this guarantee bond.
Whether deliberately or inadvertently, the performance bond did not secure
payment of the charter hire, as required by the charter party: The bond
guaranteed only redelivery.

The true identity of "Latham Smith" remains a mystery, indeed, there is some

doubt even as to his name. Polaris' correspondence suggests that the barge
"Aqua 242" was surrendered to one "Lanthram Smith." Correspondence from
Aqua-Marine's attorneys identifies the lienor on the barge as "Smith Maritime,"
and the captions to the orders entered in the district court name "Latham Smith,
d/b/a Smith Maritime" as a defendant in Polaris' cross-complaint. In his
affidavit filed in opposition to Aqua-Marine's motion for an order requiring
Polaris to post the litigation bond, Miguel Golcher, Polaris' Managing Director,
described Latham Smith as a towage operator with "a propensity to impose
liens on vessels he towed and to embroil them in litigation and seize them in far
off foreign ports...." Coincidentally, or perhaps not, there did exist, at least
ninety years ago, a "Leatham & Smith Towing & Wrecking Co.," whose libel in
admiralty is often cited as the source of the rule prohibiting the exercise of
federal maritime jurisdiction over actions not wholly maritime in character. See
Pacific Surety Co. v. Leatham & Smith Towing & Wrecking Co., 151 F. 440
(7th Cir.1907). Absent from the record in the present appeal is information
sufficient to identify or describe him, or it, with any certainty
4

In Toomer, the defendant insurer had argued, surprisingly, that the Texas bond
requirement statute was procedural, not substantive, and that federal admiralty
courts could, under Wilburn Boat, apply only substantive state rules. The court,
on the other hand, was convinced "that the statute here should properly be
characterized as substantive," but eschewed the procedure/substance dialectic in
favor of the Wilburn Boat preemption analysis. Toomer, 231 F.Supp. at 543

Haller v. Fox bears more than a passing resemblance to the present appeal.
Haller, the shipowner, and Fox, the charterer, executed a bareboat charter of the
steamboat "Mary F. Perley." The charter party required Fox to make monthly
charter hire payments and to redeliver the vessel at the end of the charter term.
Fox gave Haller a bond securing performance of his obligations under the
charter party. Fox defaulted on the charter hire payments, incurred substantial
expenses for services and supplies rendered to the vessel, and then absconded,
leaving the ship in the hands of unnamed third parties. The shipowner sued the
surety, and the court, citing De Lovio v. Boit, ruled that the action "is founded
upon a contract relating directly to the employment, navigation, supplying,
repairing, insurance, and possession of a ship," and that therefore the suit was
properly brought in admiralty. 51 F. at 299

On the other hand, had Polaris promised, for example, (1) to pay a sum certain
in the event of Banks' default on his charter hire payment obligations, and (2) to
redeliver the barge should Banks fail to do so, the obligation to pay the sum
certain would be non-maritime in character, Leatham & Smith, 151 F. at 443,
and the bond would therefore be a "mixed" maritime and non-maritime
contract. Ordinarily, a contract must be "wholly maritime" in nature to be

cognizable in admiralty. Simon v. Intercontinental Transp. (ICT) B.V., 882 F.2d

1435, 1442 (9th Cir.1989). A claim on a "mixed" contract may be adjudicated
in admiralty only if (1) the non-maritime obligations were "merely incidental"
to the primarily maritime nature of the contract (in which case a federal
admiralty court may hear both the maritime and non-maritime claims), or (2)
the maritime claims could be severed from the non-maritime claims (in which
case the federal admiralty court would hear only the severed maritime claims).
Id. The wholly maritime character of the performance bond in the case sub
judice obviates this "mixed" contract analysis
7

The Restatement provides

In the absence of an effective choice of law by the parties ... the contacts to be
taken into account ... to determine the law applicable to an issue include:
(a) the place of contracting
(b) the place of negotiation of the contract
(c) the place of performance
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of
business of the parties.
These contacts are to be evaluated according to their relative importance with
respect to the particular issue.
....
If the place of negotiating the contract and the place of performance are in the
same state, the local law of this state will usually be applied
Restatement (Second) of Conflict of Laws 188(2) and (3).
Polaris has argued that the choice of law provision in the charter party-selecting Washington as the state whose law would govern interpretation of the
charter party--was incorporated by reference into the performance bond. This
argument is far from convincing. The only provision in the charter party
incorporated by reference into the performance bond was the date for final
payment of charter hire: Paragraph 3 of the bond provides that "[a]ny suit under
this bond must be instituted before the expiration from [sic] the date on which
final payment under the contract falls due, Contract incorporate [sic] into this

bond by reference." Nowhere else in either document is any provision of one

incorporated into the other. Counsel for Polaris suggested at oral argument that
the comma between the words "due" and "Contract" was a typographical error,
and that the word "Contract" was intended to be the first word of an
independent sentence incorporating the whole of the charter party into the
performance bond. This argument is vitiated by the fact that the word
"Contract" appears capitalized throughout the text of the bond. Even were it
otherwise, the principle contra proferentem would require the ambiguity
created by the alleged error to be resolved against Polaris, the drafter of the
bond. The parties to the performance bond did not, therefore, make an effective
choice of law with respect to the bond.
8

The operative paragraph of the bond provided as follows:

NOW THEREFORE, the condition of this obligations is such that, if the
Charterer shall faithfully perform the contract on its part and shall fully
indemnify and save harmless the owner from all liability, cost, damage,
expense, and attorney's fees which it may suffer by reason of the Charterer's
failure to do so, and shall fully reimburse and repay the Owner for the outlay
and expense which the Owner may incur in making good any such default, then
this obligation shall by [sic] null and void, otherwise, to remain in full force and
effect subject however to the conditions set forth herein.